David Brown Think Cost Should Determine Your Pricing? Think Again, Writes David Brown Published 3 years ago on June 22, 2018 By David Brown Instore July 2018 Issue Share Tweet The selling price, and ultimately the margin and profit you make from a piece of jewelry, can be a cause of angst for many jewelers. Bottom line — a customer will rarely pay more for an item than they want to. We have been programmed historically to use a cost-plus basis for determining selling price, and certainly this provides a good benchmark or starting point to determine price. However, cost alone is insufficient in deciding the true value of an item. Firstly, cost is based on inputs — the price of the stone or metal that makes up a ring, for example, and valuations support this basis. However, as all of you who have had an old inventory item sit around for four years will testify, the value to the customer doesn’t always equal the inputs to the construction. Two rings of similar cost to manufacture can sell slower or faster than each other depending on the customer’s perception of their value to them. That makes it difficult to justify them being the same price. Likewise, two customers won’t value an item the same regardless of the inputs that contribute to the cost. Other factors like their priorities, personal tastes, economic restrictions, and cultural inputs will all affect the amount they would be willing to pay. If you don’t believe me, show 10 customers an unticketed ring and have them tell you what they think it is worth — the variations will be interesting. So ultimately, the selling price of an item will be determined by factors other than the costs of its manufacturer or purchase price. I am a fan of repricing items up that sell well to determine the best price they should be set at. You have to price them down when they aren’t good sellers, so the opposite needs to also apply. Your customers don’t care about your cost price on an ugly ring that you have to discount to 20 percent below purchase price — likewise, cost isn’t a factor in their decision-making for a fast seller that you have to wait six weeks for between orders. If you do use a cost-plus approach to pricing, then remember that cost should also consider replacement cost, not just actual cost. If you sell that item today, what is the cost of replacing it now with something equal or similar? Too often, with changes in the cost of raw materials, storeowners are caught short by their pricing. This can reduce the profit you thought you were making on something, especially if the replacement item proves harder to sell. As mentioned, pricing is an individual choice, but it pays to consider more than just the cost of purchasing inventory when making the decision on selling price. Advertisement Related Topics: David BrownINSTORE July '18 click to Comment(Comment) Up Next 5 Ways to Increase Your Jewelry Store’s Profit Margin Don't Miss This Might Be the Best Change You Can Make in Your Business … And Too Many Jewelers Fear It David Brown David Brown is the President of The Edge Retail Academy (sister company of The Edge), who provide expert consulting services to help with all facets of your business including inventory management, staffing, sales techniques, financial growth and retirement planning...All custom-tailored to your store’s needs. By utilizing the power of The Edge, we analyze major Key Performance Indicators that point to your store’s current challenges and future opportunities. Edge Pulse is the ideal add-on to the Edge, to better understand critical sales and inventory data to improve business profitability. It benchmarks your store against 1100+ other Edge Users and ensures you stay on top of market trends. 877-569-8657, Ext. 001 or [email protected] or www.EdgeRetailAcademy.com Continue Reading Advertisement SPONSORED VIDEO Wilkerson Testimonials Retirement Made Easy with Wilkerson The store was a landmark in Topeka, Kansas, but after 80 years in business, it was time for Briman’s Leading Jewelers to close up shop. Third generation jeweler and owner Rob Briman says the decision wasn’t easy, but the sale that followed was — all thanks to Wilkerson. Briman had decided a year prior to the summer 2020 sale that he wanted to retire. With a pandemic in full force, he had plenty of questions and concerns. “We had no real way to know if we were going to be successful or have a failure on our hands,” says Briman. “We didn’t know what to expect.” But with Wilkerson in charge, the experience was “fantastic” and now there’s plenty of time for relaxing and enjoying a more secure retirement. “I would recommend Wilkerson to any retailer considering a going-out-of-business sale,” says Briman. “They’ll help you reach your financial goal. Our experience was a tremendous success.” You may like Edge Retail Academy Introduces Retirement Readiness Program These Jewelry Stores Reported Sluggish Sales for October Sales Declined Last Month — But Where Did the Money Go? Promoted Headlines Digital Warrior: A Conversation with GemFind’s Alex Fetanat GemFind A Sales Meeting Platform for The 21st Century The Plumb Club With Average Retails of $250, This Is One Brand You Won’t Want to Miss! 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